April 04 update

With the price of gasoline in the United States reaching an all-time high, most new articles and media pundits point to the worldwide price of crude oil as the sole culprit.

There is a significant factor unrelated to crude oil prices -- namely, a shortage of U.S. refining capacity. This lack of adequate refining capacity is made worse by a maze of state and local environmental regulations that have required over-stretched refiners to produce more than 20 different gasoline formulations for various parts of the country, including states and counties that are literally next door to each other.

Venezuela is one of the major foreign suppliers of both crude oil and petroleum products, including gasoline, to the United States. Currently, Venezuela accounts for approximately 15 percent of all U.S. oil imports and is the second-largest foreign supplier of refined petroleum products. Venezuela is a vital player in the U.S. energy market, both as a foreign source of oil and through our national energy company's wholly-owned U.S. subsidiary, CITGO Petroleum Corp., which itself is the third largest refiner in the United States.

Because the United States is a natural outlet for Venezuelan petroleum products, Venezuela has a commercial and historical commitment to serving this market. No new refineries have been built in the United States for over 25 years, and regulatory constraints make the construction of any new U.S. refineries unlikely. The loosening of some environmental rules by the Bush Administration may provide existing U.S. refineries with the opportunity to expand their facilities over the next 20 years, but it may be too little, too late.

It takes three to five years and a large investment to build a new refinery or expand existing capacity. Yet the United States has little room to maneuver in increasing its refining capacity, so that unforeseen events could result in potentially unsustainable strains on the U.S. refining system.

This is not mere speculation. Last August, the electricity grids supplying the Northeastern and Midwestern United States crashed unexpectedly, shutting down a number of refineries in those areas. The temporary shut down contributed to tight gasoline supplies, and to increases in gasoline prices of up to 36 cents per gallon. At that critical time, Venezuela increased its export of reformulated gasoline to help cope with the emergency.

Robert Slaughter, the head of the National Petrochemical and Refiners Association, said at the time, ''The supply and demand balance is so tight that if you lose major output even for a day, it does have some impact. Almost anything can have an impact on prices.''

Venezuela's national energy company, Petroleos de Venezuela, S.A. (PDVSA), has one of the finest refinery systems in the world. Due to its geographic proximity to the United States, Venezuela's refineries are just four to five days of shipping time from the United States, compared to Middle Eastern refineries whose products take more than a month to arrive and a European refining system that is increasingly focused on meeting its own needs. Venezuela is already one of the largest petroleum-product suppliers to the United States in the world, but more can be done.

To this end, Venezuelan law facilitates U.S. investment in the construction of new Venezuelan refineries. Under the 2001 Hydrocarbons Law, foreign investors can own up to 100 percent of newly constructed refineries in Venezuela. Coupled with a reasonable tax structure, Venezuela's comparative advantages -- plentiful crude oil, an excellent physical infrastructure for such investments, and an educated and talented workforce -- make the country's appeal self-evident.

The refining problem facing the United States is real. Although a ''made in the U.S.A.'' solution may not be possible, a ''made in the Western Hemisphere'' solution, or more particularly, a product labeled ''produced by the combined efforts of the United States and Venezuela,'' may well be the answer.

Shell Welcomes Potential Buyers for Bakersfield Refinery - Reiterates Reasons for Announced Closure of Facility

Shell Oil Products US today said it welcomes discussions with potential buyers of the Bakersfield Refinery but reiterated its reasons for the planned closing of the refinery in October. Shell announced in November of 2003 that it would be closing the facility in October of 2004.

"Since so many people have questioned if the refinery is for sale, I want to make it clear that it is, and to state unequivocally that we are willing to sit down with any credible buyers to discuss such a deal," said Lynn Elsenhans, President and CEO of Shell Oil Products US. "We still believe, however, that once potential buyers take a close look at the facility and its available crude supply, that they will reach the same conclusion that we have. That this refinery is not economically viable going forward for a number of reasons, including the cost and availability of the crude needed to run the facility."

Elsenhans stated that the facts on which Shell based its decision to close the refinery have not changed. "This is a land-locked refinery, which because of a decline in its crude source -- San Joaquin Valley heavy crude from the Kern River Field -- makes its continued operation no longer economically viable."

Shell also restated its commitment to supply its branded customers with gasoline and diesel. "We understood that there would be many questions and we wanted to have the time needed to properly answer and respond to those questions. That is why we announced the closure 11 months ahead of time," said Elsenhans.

Elsenhans also commented on recent press and other reports questioning Shell's motives and reasons for closing the refinery. "Today, certain internal documents regarding the operation of the Bakersfield Refinery have been made public by a California special interest group. We are disappointed that these documents were publicly released, but note that they do show that the Bakersfield Refinery lost money in 2001 and 2002, and that the profit that we project for the refinery in 2004 does not justify maintaining our investment in the facility," said Elsenhans. "Furthermore, the declining utilization rates illustrate that it will not be economically viable to operate the facility going forward."

Shell Oil Products US, a subsidiary of Shell Oil Company, is a leader in the refining, transportation and marketing of fuels, and has a network of nearly 7,500 branded gasoline stations in the Western United States. Shell Oil Company is an affiliate of the Royal Dutch/Shell Group of Companies.

Illinois Gov. Rod Blagojevich has given ConocoPhillips a green light to reopen a refinery in Hartford, in a move officials hope will take some of the sting out of rising gasoline prices.

The company will be allowed to restart a closed crude oil refining unit even though the company has not yet received a permanent permit from the Illinois Environmental Protection Agency to operate it and other units purchased last year from Premcor (formerly the Clark oil company).

Officials said the temporary permit will allow ConocoPhillips' Wood River Refinery to maintain current production levels despite problems with one of its refining units.

The Premcor refinery closed in the fall of 2002, and ConocoPhillips purchased part of it last year. ConocoPhillips' Wood River Refinery and the former Premcor refinery are adjacent to each other.

The temporary permit authorizes operation of the refining unit a maximum of 30 days between April 6 and May 31. ConocoPhillips will still need a permanent permit for continued operations.

The Wood River Refinery is one of the largest in Illinois and is a key gasoline supplier in the Midwest, particularly in the St. Louis and Chicago areas. At full production, it can process 310,000 barrels of crude oil per day. The potential shortfall amounted to about 5.3 percent of the refinery's production capacity.

Melissa Erker, a ConocoPhillips spokeswoman, declined to divulge the current production level but said the former Premcor unit would allow the refinery to maintain the current level. She said the former Premcor unit could be restarted in about a week.

"The important thing is to maintain the status quo right now," said Rebecca Rausch, a spokeswoman for Blagojevich. "We don't need anything to add to the high price of gasoline. The goal is to keep prices from going up."

Rausch said administration officials are trying to determine the reasons for high gasoline prices and that Blagojevich will make additional announcements soon.

John Cusick, an oil industry analyst with Oppenheimer & Co. Inc., said the threatened shortfall probably would have had little effect on gasoline prices nationwide but could have pushed prices higher in the Midwest.

Kim Kuntzman, a spokeswoman for the Illinois EPA, said the ConocoPhillips refinery produces reformulated gasoline required in the St. Louis and Chicago areas to reduce air pollution during the summer months.

Kuntzman said the early restart will be closely monitored and should not pose any environmental problem.

Erker, of ConocoPhillips, said company officials had anticipated issuance of a permanent permit within a few weeks. She said the early restart means the company can continue to honor customer commitments despite production problems.

"We are working with all our customers to ensure there are no supply disruptions," Erker said.

ConocoPhillips had already hired about 70 additional workers in anticipation of restarting the former Premcor units. The refinery now has 760 full-time employees.

Fifteen Toledo and Oregon residents have filed a class-action lawsuit against Sunoco MidAmerica's century-old petroleum refinery, claiming that years of pollution have damaged the health and property of anyone living within 1 1/2 miles of the Woodville Road plant.

Macuga & Liddle, a Detroit law firm that claims to have litigated more than 100 environmental class-action lawsuits, said it intends to seek millions of dollars in punitive and compensatory damages from Sunoco MidAmerica Marketing & Refining.

"It's in the millions of dollars because of the number of plaintiffs," Steven D. Liddle, the lead attorney on the case for Macuga & Liddle, said of the amended lawsuit filed this week in Lucas County Common Pleas Court.

Although 15 residents are named as primary plaintiffs, the suit claims to represent a class defined as anyone who resided within 1 1/2 miles of the refinery at 1819 Woodville Rd., and who had their bodies or their personal properties impacted by pollutants, dust, ash, soot, noxious odors, and other contaminants allegedly emitted by the refinery.

While the exact number of people who may be involved was not immediately known yesterday, it is certainly well into the thousands. More than 57,000 people currently live within three miles of the refinery along the Toledo-Oregon border, an area twice as wide as that defined in the suit.

The suit, assigned to Judge Ruth Ann Franks, alleges that Sunoco "intentionally, recklessly, willfully, wantonly, maliciously, and negligently failed to construct and/or maintain its facility, which caused the invasion of plaintiffs' person and property by noise, fallout, noxious odors, air contaminants, and other airborne pollutants on dates too numerous to mention."

The suit seeks payment for medical testing and treatment, and whatever expenses are necessary to restore houses, automobiles, and other types of property that have allegedly been damaged by air pollution from the plant.

In addition, the lawsuit demands Sunoco install modern pollution controls at the refinery - something which state regulators have been demanding for years - and which could potentially cost Sunoco millions of dollars. The refinery, which last year employed 454 workers, has a long history of air pollution violations. Sunoco recently agreed to pay a $475,000 fine to settle pending pollution litigation, according to a consent order negotiated between the company and the state attorney general's office. Details of the order were announced by the Ohio Environmental Protection Agency on March 23.

The order requires the refinery to stay in compliance for sulfur dioxide emissions. A similar order was signed in 1995, when Sunoco agreed to pay a $200,000 fine and achieve air pollution reductions the state EPA had sought since 1988.

The Ohio attorney general's office filed the most recent lawsuit in 2002, claiming that Sunoco had violated the 1995 order by exceeding sulfur dioxide limits on more than 200 days since 1996.

The Sunoco refinery is currently the focus of a cancer study being done by the federal Agency for Toxic Substances and Disease Registry in Atlanta, a sister agency of the U.S. Centers for Disease Control and Prevention.

The federal health study is in conjunction with a broader one in which the Ohio Department of Health is looking at Lucas County's cancer rate based on lifestyle and environmental factors, including industrial pollutants, smoking, obesity, and alcohol consumption, said Dr. Robert Indian, the department's cancer surveillance chief.

A proposed refinery in eastern Yuma County won't worsen air quality, neither will it lower gasoline prices, says the head of the company that plans to build it.

Asked by county Supervisor Tony Reyes if the refinery would emit any fumes that people living in the area would have to worry about, Arizona Clean Fuels’ Glenn McGinnis answered, "No."

"What you will see when you look at the facility is a white plume coming from the cooling tower, which is basically water," McGinnis, the company's chief executive officer, told supervisors at their board meeting.

"However, because of the dry desert air here it won't be very big, and disappear very quickly."

McGinnis added the refinery would be the cleanest, most modern refinery in the world and have to meet very stringent air quality controls.

As far as Yuma motorists possibly paying less at the gas pumps, McGinnis said while it’s possible prices could go down, he doesn't expect it will happen.

"I'm not sure gas will be any cheaper because prices are basically set by competitive forces, not by the refineries," McGinnis said. "We will obviously have an impact on the competition in the area, and change the costs required to move product here, so potentially it could be cheaper."

McGinnis told supervisors that Yuma County is an ideal location to build the country's first new refinery since 1976.

"The site is very close to the pipeline from Los Angeles to Phoenix, it's near the Mexican border — which makes it much easier for the crude oil pipelines system to come in and it has highway and rail access," McGinnis said.

The company intends to locate a $2 billion refinery in the eastern part of the county and was at the board meeting giving a presentation to supervisors.

Arizona Clean Fuels has purchased 1,450 acres along Interstate 8 and Avenue 45E from the Wellton-Mohawk Irrigation and Drainage District near Wellton to build the refinery. The site also includes a 1,500-acre buffer zone that could later be developed into an industrial park to service the facility.

A special use permit is required for the refinery to be built in Yuma County and it will ultimately be up to the board to decide whether or not to approve the permit.

"This is going to have a huge impact on economic development in eastern Yuma County. East county will never be the same again," said Lucy Shipp, board chairwoman.

While a majority of the gasoline produced would go to Maricopa County by pipeline, McGinnis said the refinery would also supply Yuma, Tucson and southern California by truck.

McGinnis told supervisors explosive growth and an ever-increasing demand for petroleum products in the Southwest has stretched the state's current pipeline supply system beyond capacity.

With refineries in West Texas and California also operating at peak capacity and unable to expand to help meet the growing demands, building a new refinery McGinnis said, would help solve the state's long-term gasoline supply problem.

"So the system really has to have something done to it in the next five to 10 years in regard to how Arizona is supplied," McGinnis said.

The refinery would convert 110,000 barrels of crude oil — delivered via pipeline from Mexico — into 7 million gallons of gasoline, diesel and jet fuel a day, a bit more than half the state's current demand of 13 million gallons a day.

McGinnis went on to say Yuma County will see both direct and indirect benefits from the refinery. While under construction, the refinery will create about 3,000 temporary jobs, as well as numerous significant spin-off business opportunities. Once in operation the refinery will employ about 400 people and provide a major source of property, sales and income tax revenue for state and local governments and schools.

The company has said it hopes to begin construction in late 2004 and put the plant into operation by late 2008 or early 2009.

To supply the refinery, Arizona Clean Fuels wants to bring crude oil from western Mexico through a $500 million pipeline and transfer facilities it would build.

Although its course hasn't been determined yet, McGinnis said the pipeline that would carry the crude oil to be refined would come into Yuma either from a large port in Rosarito on the Pacific Ocean near Tijuana, or via Guaymas, a smaller port in the Gulf of California.

The company originally planned to build its refinery in Mobile, just south of Phoenix, but upcoming changes in ozone standards for Maricopa County, which would have made expansion difficult, prompted the company's switch to Yuma.

Plains All American Pipeline, L.P. (NYSE: PAA - News), through its subsidiary Plains Pipeline, L.P., announced on April 23 that it has signed a pipeline transportation service agreement with Coffeyville Resources Refining & Marketing, LLC ("CRRM"). Under the agreement, Plains Pipeline will construct, own and operate a 100-mile, 16-inch pipeline that will transport crude oil from Plains All American's terminal in Cushing, Oklahoma, to the Broom Station in Caney, Kansas. At Caney, the new pipeline will connect to an existing third-party pipeline that will transport crude oil to CRRM's refinery in Coffeyville, Kansas.

The new pipeline is subject to a long-term agreement that provides the point of origination for shipments on the pipeline will be Plains All American's Cushing Terminal. In addition the agreement requires CRRM to meet minimum shipment requirements during the initial 5-year term of the contract. The Partnership has scheduled the mill runs for the pipe, is actively working on adapting the Coffeyville right-of-way for the new line and expects to begin generating revenue during the first quarter of 2005. The expected cost for the project is approximately $33 million.

"We are pleased to announce this 'win-win' arrangement with CRRM," said Greg L. Armstrong, Chairman & Chief Executive Officer of Plains All American. "This organic growth project highlights the flexibility of our assets and our ability to provide value-added services to our customers. In addition, this project offers the Partnership an attractive rate of return on its incremental investment and also increases the anticipated utilization of our current Phase IV expansion project at our Cushing Terminal."

Philip L. Rinaldi, Chief Executive Officer of Coffeyville Resources, said "We are delighted to be working closely with Plains on this important project, the completion of which will ensure our refinery access to Cushing-based crude oil for the foreseeable future."

Plains All American Pipeline, L.P. is engaged in interstate and intrastate crude oil transportation, and crude oil gathering, marketing, terminalling and storage, as well as the marketing and storage of liquefied petroleum gas and other petroleum products, primarily in Texas, California, Oklahoma, Louisiana and the Canadian Provinces of Alberta and Saskatchewan. The Partnership's common units are traded on the New York Stock Exchange under the symbol "PAA". The Partnership is headquartered in Houston, Texas.

Sunoco Plans Erosion Project near Tulsa Refinery

Philadelphia-based Sunoco Inc. is planning a $1.8 million project to control erosion along a river that separates its refinery from downtown Tulsa, Okla.

Erosion along the Arkansas River bank threatens to expose waste materials buried decades ago near the refinery, officials said. If the erosion is not prevented, oil, asphalt sludge and other pollutants might wash into the waterway.

"We're losing a lot of soil," said Andrew Haar, environmental manager for Sunoco. "And every time it rains, we lose more."

Oil refineries routinely disposed of waste in nearby pits in the days before modern environmental regulation.

Sunoco's project will bolster 1,800 feet of the riverbank by building a stone barrier to prevent erosion and constructing a storm water management system to prevent flooding.

The project is scheduled to begin in June with construction completed in September when Sunoco will plant new grass and about 800 trees.

Citgo Petroleum Corp. has decided to move its headquarters from Tulsa, Okla., to Houston, and to make an $828 million investment in the Corpus Christi refinery.

Citgo President and CEO Luis Marin and Gov. Rick Perry came to Corpus Christi April 26 to make the announcement. The decision by Petroleos de Venezuela SA, or the PDVSA board, Venezuela's state-run oil monopoly that owns Citgo, to come to Texas will bring 700 new jobs to Houston and another 120 to Corpus Christi.

Marin said strategic and operational concerns outweighed the incentives from Texas officials in the decision to take about 700 jobs to Houston.

"The energy business is the cornerstone in the state of Texas and the city of Houston," Marin said. "When combined with Citgo's people, resources and assets, I feel confident that this relocation will propel the company to the next level of success."

The $828 million investment at the local refinery is split three ways, with roughly $300 million going to environmental fuel production upgrades, $200 million to refinery maintenance and another $300 million to increase refining capacity, Willmon said. The improvements at the refinery represent the single largest refinery expansion in the United States in 20 years, said Ron Kitchens, president and CEO of the Corpus Christi Economic Development Corporation.

Along with the city of Corpus Christi and the city of Houston, Kitchens worked on the deal to bring Citgo to the Lone Star State.

Kitchens said that over the next three years, the expansion will add 120 jobs with an annual average salary of $88,000. As well as refinery jobs, the expansion will create more than 2,000 construction jobs.

"It's great news," he said. "It shows the importance of our clean air and also our ability to compete globally."

Each job inside the fence at a refinery generates 7.2 jobs outside the fence, Kitchens said, meaning that 1,100 jobs will be added over the next three years.

In return, Citgo will receive a $5 million Texas Enterprise Fund grant and the cities of Houston and Corpus Christi will sponsor a low-interest loan of $15 million through the Texas Economic Development Bank.

"The law requires that a public entity sponsor the loans," said Assistant City Manager Mark McDaniel. "The state makes the loan and it won't appear on the city's books."

As part of the loan agreement, Citgo guarantees a certain amount of investment and jobs in the cities over the next 10 years, he said.

A planned shutdown of the Marsden Pt oil refinery at the end of this month is expected to pour up to $15 million into the Northland economy.

The refinery will start its planned three-week shutdown on April 29 and will close down several major processing units so they can be worked on and maintained. The work will include catalyst regeneration and replacement, heat exchanger cleaning, process equipment cleaning and internal inspections, and several minor projects to replace equipment and line work.

These activities will go on until the third week of May, when the plant's hydrocracker and platformer units will be in the process of starting up and producing high quality fuels.

The shutdown will reduce petrol and diesel production at the refinery and oil companies have made plans for alternate supplies during this period as the timing and scope of this shutdown has been decided and communicated already several months ago, refinery spokeswoman Sue Dykes said.

"Catalyst and maintenance turnarounds have a positive impact on the community by injecting a significant proportion of the shutdown maintenance budget of over $15 million into the local economy over the three weeks of the shutdown," Ms Dykes said.

The shutdown work will involve a workforce peaking at 450 additional staff, with some critical maintenance activities continuing round the clock. Road traffic to Marsden Pt will increase at peak times.

She said a more visible impact of the shutdown will be periods of "flaring" from the refinery's chimneys during the shutting down and starting up phases.

The New Zealand Refining Company, which runs the plant, will aim at keeping this unavoidable flaring to a minimum.

The refinery's hydrocracker converts heavy waxy oils into high quality diesel and jet fuels.

The shutdown is required to replace catalysts that assist in the conversion processes. Along with the removal of used catalysts, and reloading of fresh catalysts, the shutdown will give the opportunity for critical maintenance and inspection activities that can only be carried out when the plant is shutdown.

More than 600 metric tons of spent hydrocracker catalyst will be removed after being in use for almost three years. The platformer is another catalytic process unit which upgrades the octane of petrol. Catalyst in this unit is regenerated every 18 months to two years.

A comprehensive health, safety and environment plan has been developed for the shutdown to ensure that the work goes ahead without any negative impacts on people or the environment, Ms Dykes said.

To build two new gasoline refineries in the United States, Saudi Arabia would have to negotiate a maze of state and federal regulations that have squelched new U.S. construction since the late 1970s.

With record-high U.S. gasoline prices casting a shadow over U.S.-Saudi relations, Saudi Oil Minister Ali al-Naimi said the kingdom could build two 500,000 barrel-per-day refineries in the United States if it can obtain permits.

Saudi Arabia is prepared to pay up to $100 million to obtain licenses and building permits, Naimi told an industry conference in Washington April 27.

Experts say each refinery could cost upwards of $1 billion to build and take a decade to complete. Accurate construction cost estimates are rare because the last independent U.S. refinery was built in 1976.

"It's easily a billion dollars and the problem is you don't know how long it will take to build it," said Bob Slaughter, president of the National Petrochemical and Refiners Association.

Saudi officials would have to contend with a Byzantine batch of state and local permitting requirements, along with Environmental Protection Agency rules regulating air and water emissions along with the impact on nearby communities.

"A new refinery built in the U.S. would be covered by a comprehensive set of clean air, clean water and solid waste disposal laws and regulations" from local, state and federal agencies, an EPA spokesman said.

"I would be very skeptical," said Wesley Ralston, an analyst at Howard Weil. "The environmental red tape in the Lower 48 (U.S. states) is very onerous."

Extra capacity is sorely needed but "you're certainly not thinking about something that will make a difference this summer or next summer," said Ed Murphy, a refining expert at the American Petroleum Institute.

Some of the stiffest opposition to new refineries would come from the local level because of the so-called "not-in-my-backyard" issue, or "NIMBY," Slaughter said.

State and local support is critical, as local governments issue permits that would allow Saudi Arabian firms to begin construction. Saudi Arabia has not indicated where it could build such a project.

"A lot of times the local regulations are the ones that are the toughest," Slaughter said. "You run into the NIMBY factor at the local level."

For example, Slaughter pointed to an attempt to restart the mothballed Powerine refinery near Los Angeles a few years ago, which was quashed by landowner complaints. No new refineries have been built in California since 1969.

In the face of such opposition, U.S. refiners have opted to buy existing refineries rather than face the regulations.

"If you talk to refiners they'll say there's a much greater chance of being successful at making an acquisition at a decent price than there is in building," Slaughter said.

An environmental health organization revealed a report April 21 that stated the amount of toxic chemicals emitted from Bay Area refineries has been 'grossly underestimated' and the group announced plans to sue Valero Energy Corporation if the Benicia refinery does not reduce flaring within the next 60 days.

Representatives from Communities for a Better Environment presented the report to Bay Area Air Quality Management District officials during one of its regularly scheduled meetings and asked the district to develop a more stringent flare rule, according to the group's spokesman, Greg Karras.

Karras said new studies have found local refineries dump an estimated average of 10 to 40 tons of toxic fumes into the air every day, causing serious health problems in people who live nearby.

Lucia Libretti, spokeswoman for the air quality management district, agreed that toxic emission measurements in the past have been imprecise and said that by the end of this year, the district plans to develop a proposal for a new flare rule based on more accurate measurements produced by recently purchased, state-of-the-art equipment.

'We already have the most stringent flare monitoring rule in the world,' Libretti said. But the new and improved equipment will allow the district to develop a 'fool-proof regulation,' she said.

According to Karras, some refineries are making improvements, including Conoco Phillips, which, according to a statement from the group, signed an agreement promising to install a compressor that will recycle gases instead of flaring them.

Jon Ballesteros, a spokesman for Tesoro, said the Golden Eagle refinery in Martinez has been working closely with the air district for many months trying to determine an accurate inventory of flare emissions and said he believes the numbers 'CBE presented to the board were overstated.'

Ballesteros also said in 2003, Tesoro voluntarily installed a compressor and flares have been reduced by over 90 percent.

Specialists from the county's hazardous materials department agree that that refineries have come a long way from the days when the 'homes around refineries were black' from the toxic fumes.

Specialist Mike Wedl said 'the Avon Tosco refinery, now the Conoco Phillips refinery in Rodeo, used to have flaring activity on a daily basis. Now that Tesoro has take over, it's unusual to see any flaring at all.'

But CBE spokesman AJ Napolis said that while Tesoro has 'taken steps to reduce flaring, it has not finished the job' and said that the Valero refinery has not done anything to curtail emissions.

Valero spokesman Scott Folwarkow said, 'The refinery is in full compliance with rules and regulations of the district. If the district is going to move forward with a flare rule, we will be involved in that process.'

Giant Industries, Inc. (NYSE:GI) announced, April 8 that a fire occurred at its Ciniza refinery at approximately 9:00 a.m. MDT in the alkylation unit, a unit that produces high octane blending stock for gasoline. As previously announced, the fire was contained to this unit, although there was also some damage to ancillary equipment of two adjacent units.

As a result of the fire, Giant temporarily shut down all of the operating units at the Ciniza refinery. At present, the Company does not believe there is significant damage to any of the refinery units other than the alkylation unit. The fire is currently under investigation by various governmental agencies. The Company also is conducting its own investigation with the assistance of an independent refinery expert to determine the cause of the fire and the extent of the damage.

On April 17, 2004, the refinery already was scheduled to commence a major repair and upgrade shutdown (known as a "turnaround"), and some of the turnaround team already was on site at the refinery when the fire occurred. In order to minimize the disruption to the refinery's operations, Giant accelerated the turnaround. This will allow the Company to work on the necessary repairs to the alkylation unit during the turnaround period when the refinery would not have been operating anyway. The turnaround is expected to be completed by mid-May. Based upon a preliminary internal investigation, Giant currently estimates that the cost to repair the damage caused by the fire will be in the range of $2.5 - 4.0 million and that repairs should be completed by mid-June. Giant has property insurance coverage that should cover a significant portion of the repair costs and also could receive proceeds from business interruption insurance if the waiting period under the policy is exceeded.

Prior to the fire, Giant was producing approximately 18,000 barrels per day at Ciniza and approximately 10,000 barrels per day at the Bloomfield refinery, which also is located in the Four Corners area. During the turnaround and while repairs to the damaged unit are ongoing, Giant intends to increase the output of its Bloomfield refinery by approximately 6,000 barrels per day. The Bloomfield refinery has a crude oil throughput capacity of 16,000 barrels per day and a total capacity including natural gas liquids of 16,600 barrels per day. After the turnaround, the Ciniza refinery could operate at full capacity while repairs to the alkylation unit are completed if it purchases high octane blending components from outside sources. Alternatively, Ciniza could sell the intermediate feedstocks processed by the unit to third parties for final processing.

The Ciniza refinery has a crude oil throughput capacity of 20,800 barrels per day and a total capacity including natural gas liquids of 26,000 barrels per day. The alkylation unit has throughput of 1,800 barrels per day. The refinery is located near Gallup, New Mexico.

Giant, headquartered in Scottsdale, Arizona, is a refiner and marketer of petroleum products. Giant owns and operates one Virginia and two New Mexico crude oil refineries, a crude oil gathering pipeline system based in Farmington, New Mexico, which services the New Mexico refineries, finished products distribution terminals in Albuquerque, New Mexico and Flagstaff, Arizona, a fleet of crude oil and finished product truck transports, and a chain of retail service station/convenience stores in New Mexico, Colorado, and Arizona. Giant is also the parent company of Phoenix Fuel Co., Inc., an Arizona wholesale petroleum products distributor.

Valero Energy Corporation Selects CB&I for Clean Fuels Project At Louisiana Refinery

CB&I (NYSE: CBI), through its subsidiary CB&I Matrix, has been awarded a lump-sum turnkey EPC contract by Valero Energy Corporation to engineer and construct a new 60,000 barrel per day (BPD) Gasoline Desulfurization Unit at Valero's 185,000 BPD refinery in St. Charles, La. The contract is valued in excess of US$60 million.

CB&I's scope includes the design, fabrication and installation of the complete process unit, which will reduce the sulfur content of naphtha feedstock using catalytic distillation technology licensed from CDTECH. The low sulfur gasoline produced by the new unit will enable Valero to better comply with U.S. Environmental Protection Agency (EPA) Tier 2 gasoline specifications. Mechanical completion is expected in summer 2005.

Gerald M. Glenn, CB&I's Chairman, President and CEO, stated: "We are pleased to continue our association with Valero as a key supplier for their clean fuels program. Our Process and Technology group offers a comprehensive slate of technology and resources to meet the process needs of refiners worldwide."

CB&I is one of the world's leading engineering, procurement and construction (EPC) companies, specializing in lump-sum turnkey projects for customers that produce, process, store and distribute the world's natural resources. With more than 60 locations and 10,000 employees located throughout the world, CB&I capitalizes on its global expertise and local knowledge to safely and reliably deliver projects virtually anywhere.

The CHS refinery in Laurel recently settled air quality violations cited by the U.S. Environmental Protection Agency with an agreement to reduce air pollution through several projects.

The company also paid a $171,875 civil penalty that was split between the U.S. Department of Justice and the state of Montana.

The consent decree, filed in U.S. District Court in February, was among the latest in a series of multi-issue, multi-refinery settlements EPA is pursuing in a nationwide probe of the oil refining industry.

EPA is investigating whether refiners violated the Clean Air Act by expanding capacity without obtaining permits that would require installing pollution-control equipment.

Pat Kimmet, manager of the CHS refinery, formerly Cenex Harvest States Cooperative, said the company has been working with EPA for three years and that the settlement is similar to ones the agency has reached with other refiners.

The 161-page consent decree outlines technologies that CHS is to install to reduce emissions of sulfur dioxide, nitrogen oxides, particulate matter and carbon monoxide. The refinery also is required to improve its leak-detection and repair practices, reduce the number and severity of flaring events and assure continued compliance with benzene waste requirements.

In addition to reducing sulfur dioxide pollution, the refinery also will cut emissions of nitrogen oxides by 350 tons a year and particulate matter by 50 tons a year, Kimmet said.

While CHS's $87.5 million low-sulfur diesel hydrotreating project under construction was already permitted before the consent decree was signed, parts of that project were incorporated into the settlement, Kimmet said.

For example, a tail gas recovery unit being added to the refinery's older sulfur recovery plant is part of the low-sulfur diesel project and was included in the consent decree. The recovery system will capture more sulfur from waste gases so less sulfur dioxide will be sent to the atmosphere. Sulfur dioxide from the sulfur plant, which was responsible for 73 percent of the refinery's overall emissions last year, will drop more than 1,000 tons a year, Kimmet said. The tail gas recovery unit will be in operation by the end of the year.

The low-sulfur diesel project is to start in June 2005, one year ahead of federal regulations, Kimmet said. Sulfur content in diesel fuel will go from 500 parts per million to below 15 ppm.

The settlement also includes some "environmentally beneficial'' projects. One is called a flare knock out drum, which is to be in operation by December 2008 and to cost at least $440,000, according to the consent decree. Kimmet said the project will reduce pollution from the flare.

CHS already has completed another project, which was to pay the city of Laurel $150,000 to help buy a diesel-powered electric generator to serve as a backup power source for the city's water plant. The generator cost about $300,000. The generator was completed last October and has been used twice, Kimmet said.

"It was a very good example of a cooperative endeavor between CHS and the city of Laurel,'' Kimmet said.

In the past three years, EPA has reached settlements with several major refiners covering 37 refineries and 35 percent of domestic refining capacity. The agreements reflect similar comprehensive approaches for addressing compliance concerns.

EPA reached settlements in 2001 with two other refiners in Montana - ConocoPhillips, which operates a refinery in Billings, and the Navajo Refining Co., in Great Falls.

Betsy Wahl, of EPA's Montana air programs, said EPA has reached settlements with three of four refiners in Montana. ExxonMobil in Billings is the fourth. Wahl said EPA is committed to looking at all the refiners.

ExxonMobil Research and Engineering Company (EMRE) announced today that Petro-Canada has selected EMRE's ultra low sulfur diesel technology for their Montreal Refinery.

The 30,000 barrels per day grassroots ultra low sulfur diesel hydrotreater features the latest in EMRE's Spider Vortex(1) reactor technology to process a mix of virgin and processed feedstocks to meet year 2006 on-road diesel fuel sulfur specifications. Spider Vortex reactor internals provide the leading edge technology solution for owners who want to optimize grassroots or revamped hydroprocessing reactor performance and reliability. Spider Vortex has been commercially demonstrated and thoroughly proven in more than 30 applications in ExxonMobil refineries and several licensed facilities.

EMRE designed the ultra low sulfur diesel facilities using ExxonMobil's vast refinery commercial and pilot plant databases in conjunction with state-of-the-art computing tools which simultaneously solve several thousand chemical species reaction equations. Using this technology base, EMRE were able to minimize capital investment while maintaining superior reliability and low operating costs for Petro-Canada's Montreal Refinery Project.

EMRE is the research and engineering arm of Exxon Mobil Corporation, a leading global oil, natural gas, and petrochemicals company whose subsidiaries have operations in approximately 200 countries and territories.

Petro-Canada is one of Canada's largest oil and gas companies, operating in both the upstream and downstream sectors of the industry in Canada and internationally. Common shares trade on the TSX under the symbol PCA and on the New York Stock Exchange under the symbol PCZ.

Construction starts on an environmental addition to Shell Canada's Scotford Refinery that will employ up to 450 workers on the site near Fort Saskatchewan, 40 kilometers northeast of Edmonton.

After more than 20 years and $110-million worth of research, a Canadian company has found a way to make "greener" gasoline on a commercial scale.

Iogen Corporation of Ottawa has developed enzymes to break down waste straw and wood chips into ethanol on a commercial scale.

"This is our big Eureka moment, because this is the first time in the world that such large quantities of cellulose ethanol have been made," said Jeff Passmore, vice president of Iogen on April 21, the eve of Earth Day.

Until now, the ethanol blend used in commercial gasoline was made from the food portion of crops like corn.

Critics said conventional corn and grain-based ethanol requires as much energy to produce as it releases when burnt, once the energy for tractors and pesticides are taken into account.

Environmentalists prefer cellulose ethanol because it is made from farm waste and produces fewer greenhouse gas emissions.

"Iogen has figured out how to weave gold out of straw," said Elizabeth May, executive director of the Sierra Club of Canada, who was among the invited guests, including Prime Minister Paul Martin.

The federal government has stressed the importance of alternative fuels to meet Kyoto protocol targets. It has invested $21.1 million in the company, of which $10 million is repayable.

"The government of Canada will continue to support the development of clean energy technologies, technologies that pay not only environmental dividends but economic ones as well," said Martin.

The first shipment of 5,000 litres of cellulose ethanol will be blended with regular unleaded gasoline at a Petro-Canada refinery in Montreal. It will then be shipped to some of the company's gas stations.

Both Petro-Canada and Royal Dutch Shell are supporting the project with $24.7 million and $46 million respectively.

Petro-Canada to Upgrade Montreal Refinery for Ultralow-Sulfur Diesel Production

Petro-Canada plans to upgrade its Montreal refinery to produce ultralow-sulfur diesel using the Spider Vortex reactor technology created by ExxonMobil Research & Engineering Co.

The 30,000 b/d grassroots ultralow-sulfur diesel hydrotreater will process a mix of virgin and processed feedstocks to meet Canada's year 2006 on-road diesel fuel sulfur specifications.

Mexico's construction sector is seen enjoying a strong 2004, buoyed by strong infrastructure investment, growing housing demand and an economic recovery, analysts said.

Large public investment projects up for tender in coming months include a $1.3-billion upgrade of Pemex's Minatitlan oil refinery in Veracruz state, together with a power station and highway concessions.

Exxon Mobil, China Petroleum Chemical and Saudi Aramco may be nearing an accord on a $3 billion chemical project in China, delayed for two years, following a visit there this month by the Saudi oil minister, Ali al-Naimi.

"We have not officially signed the deal, but have made huge progress," Huang Wensheng, investor relations manager at Beijing-based China Petroleum. Sinopec, as the company is also known, is Asia's largest oil refiner and China's top seller of oil products.

Exxon and its partners aim to triple capacity of an 80,000 barrel-a-day oil refinery in Fujian Province and add an 800,000 metric-ton plant to make ethylene, a raw material for plastics, according to a plan approved by China's cabinet in 2002.

Al-Naimi visited China, South Korea and Japan, Asia's three biggest oil buyers, as Saudi Arabia faces rising competition from Russia. The Fujian project would raise Saudi exports to China by as much as half. Exxon is trying to catch up with Royal Dutch/Shell Group and BP in the world's fastest-growing chemicals market.

"Fujian has been in the pipeline a while and is just one of many projects Sinopec has planned to aggressively expand its petrochemical capacity," said Scott Weaver, an oil and petrochemical analyst at ING Financial Markets in Taipei.

Exxon, Saudi Aramco, Sinopec and the Fujian government each have 25 percent of the project.

The project may have been delayed because Sinopec is reluctant to help Exxon take a share of its business in ethylene and other oil products as the Chinese market opens up, Petroleum Intelligence Weekly said, without saying where it got its information.

"The project involves refinery and ethylene ventures, both of which we want to take part in," said Tang Ling, an Exxon Mobil spokeswoman in Beijing. "We don't comment on the progress of negotiations on a particular contract made with our partners."

Saudi Arabia, which controls the world's biggest oil reserves, faces increasing competition from Russia and other producers outside the Organization of Petroleum Exporting Countries to supply Asian economies with oil.

Russian output grew 12 percent in the first two months of this year to 8.9 million barrels a day against the Saudis' 8.4 million barrels. Saudi Arabia can produce as much as 10 million barrels a day, with more than 40 percent of its output going to Asian buyers.

Japan is competing with China to secure oil and gas supplies from Russia's fields in eastern Siberia.

Saudi Aramco, the Saudi Arabian state oil company, said last month that it also expected to own a 25 percent stake in Sinopec's new refinery in the province of Shandong, according to Aramco's chief executive, Abdallah Jum'ah.

Inchon Refinery, the fifth largest in the nation and now bankrupt, will be sold to Sinochem Corp., a state-owned oil company in China.

With the ongoing bid to acquire South Korean companies, Chinese firms are continuously entering into sales negotiations in Korea. Last January, Beijing-based BEO Technology Group acquired Hynix’s affiliated company Hydis and recently, China’s Lanxing Group and others are reportedly bidding for SsangYong Motors.

The bankruptcy department of Inchon District Court said Sunday that after a public tender for Inchon Refinery the department declared Sinochem, which got highest marks, as the preferred bidder.

Sinochem has offered W650 billion to acquire Inchon Refinery, according to Young Wha Accounting, the supervising company for the bidding.

In due time, Sinochem is to reportedly go into a detail negotiations with Inchon Refinery and make a final agreement later next month. Sinochem is one of the three largest state-run oil companies in China. Sinochem’s participation in the bidding to acquire Inchon Refinery, no doubt, seems like an effort to secure more oil for China.

Inchon Refinery has a daily processing capacity of 275,000 barrels. However, after filing for bankruptcy in August 2001, the company has proceeded on with the company disposal by sale.

Oil and Natural Gas Corporation (ONGC) is eyeing a 26 per cent stake in the Bharat Petroleum Corporation-promoted (BPCL) Bina refinery.

Sources said talks with BPCL and the government to buy a slice of equity in the greenfield refinery coming up in Madhya Pradesh, are under way. “The process of evaluation of the project is on and the final decision will be based on this,” they added.

ONGC, the largest profit-making company in the country, is seriously looking at downstream (refinery) projects to emerge as an integrated oil major.

It already owns 72 per cent of Mangalore Refineries and Petrochemicals (MRPL), which is producing over 9.6 million tons of petroleum products.

The logic behind the acquiring a stake in Bina is that ONGC, which has decided to set up a country-wide retail network soon, will be able to source petroleum products in line with its requirement in the central and northern regions. MRPL, based in the south, is used to cater to the demand in that region.

A senior ONGC official said no concrete decision on buying a stake in the Bina refinery has been taken. However, he said the company is keen to source products from various refineries. Any possible participation in Bina would be part of this quest.

The greenfield refinery was envisaged in 1995 with a project cost of Rs 5,277 crore. But the venture is now expected to cost Rs 6,354 crore because of delays.

The project was initially planned as a joint venture between BPCL and Oman Oil, each holding 26 per cent. But sources say the Oman firm refused to pick up its share of the equity, insisting it would stay with 2 per cent. ONGC is considering filling that slot.

Meanwhile, Bharat Petroleum has sought fiscal concessions from government to make the project viable in a competitive market. It has requested the Madhya Pradesh government for the waiver of entry tax on crude and the deferment of sales tax for 15 years.

It also wants relief in electricity duties and royalty on construction material. According to a conservative estimate, the sales-tax respite alone would save Rs 400 crore annually.

The Bina project comprises single-point mooring, a crude oil terminal with connecting sub-sea and onshore pipeline at Vadinar in the Gulf of Kutch. There will be a 935-km crude pipeline from Vadinar to Bina.

Oil and Natural Gas Corporation (ONGC) is planning to increase the capacity of its subsidiary Mangalore Refinery and Petrochemicals Ltd (MRPL) to 15 million tons from the existing 9.69 million tons.

The total investment for the brownfield expansion project, to be completed by 2007, has been pegged at Rs 2,000 crore.

The move is part of ONGC’s plans to strengthen its presence in refining as well as retailing activities.

A detailed feasibility report for the project is currently under way. According to sources, the project is expected to be carried out in two phases in the next three years.

The expansion will pave the way for various additional units, some of which will be ready by December 2004.

“The refinery capacity would be raised to 12 million tons by December through minor revamps, which will cost around Rs 300 crore,” a senior ONGC official said.

MRPL has set a production target of close to 10 million tons in the current fiscal through a de-bottlenecking exercise of the existing capacity. For this, the company needs to process about 10.8 million tons of crude.

The company plans to export about two million tons of naphtha, petrol, jet fuel, diesel and fuel oil, they said.

MRPL processed 10.05 million tons of crude, which is 104 per cent of the rated capacity of 9.69 million tons. This is the highest-ever crude run in the refinery. MRPL registered a gross turnover of Rs 12,488 crore, up 46 per cent over last year. The company is also set to register a net profit in the current year through a last-minute financial engineering with ONGC providing a major support.

In 2003-04, MRPL exported 4.262 million tons of finished products, with a realization of Rs 4,470 crore, more than doubling the export earnings over the previous year.

Indian Oil Corp, the country's largest refiner, plans to spend $2 billion to acquire a foreign exploration firm, both to secure its crude oil supply and become more competitive, an oil ministry official said on April 23.The state-run firm's board of directors will consider the proposal at a meeting next week.

He also said IOC, India's only Fortune 500 company, was assessing medium-sized exploration and production firms in Britain, Canada and Australia. "There are a dozen-odd medium-sized firms IOC is looking at," said the official.

If IOC's proposal to acquire an exploration firm is approved by the government-controlled board of directors, it will shortlist firms it can acquire and begin negotiations, he said.

IOC plans to invest in the upstream sector as well as petrochemicals to compete with more diversified rivals.

IOC competes with Reliance Industries, which operates India's largest single refinery at Jamnagar with a capacity of 660,000 barrels per day, has stakes in oil and gas fields and is a dominant petrochemicals maker. It also competes with state-run Oil and Natural Gas Corp, which took a majority stake in Mangalore Refinery and Petrochemicals Ltd last year.

IOC was earlier seeking a stake in ONGC's foreign investment arm, ONGC Videsh Ltd, which has stakes in oil and gas fields in several countries including Russia, Sudan, Myanmar and Vietnam.

IOC already operates petrol stations in Sri Lanka and also has plans to sell refined products in Mauritius. On April 22 it opened a storage facility in Mauritius to launch its $18-million business plan, which also includes 25 petrol stations in the country, a company statement said.

Indian refiners have reported hefty profits in the last two years as the government gave them freedom to raise retail prices of petrol and diesel in step with global crude oil prices.

IOC's net profit in 2002/03 jumped 112 percent to 61.15 billion rupees ($1.4 billion) because of higher refining margins.

In April-December 2004/05, net profit was 51.55 billion rupees, up 31 percent from the corresponding period a year ago.

Essar Oil Ltd will commission the first phase of its 10.5 million tons refinery at Vadinar in Gujarat by 2005 end and plans to set up 600 petrol stations in the country this fiscal.

"All contractors have been mobilized and construction on the refinery has begun. We hope to commission the first phase refinery of 6 million tons in 18 months", EOL managing director and CEO Mr A N Sinha said on the sidelines of the 3rd Downstream Petroleum Retail Marketing Conference here.

The company has tied up all funds and equipment for the refinery, work on which began late last year.

Essar Oil, which has a license to set up 1700 petrol pumps, plans to pursue its retail plan aggressively this year.

"We have already set up about 35 petrol stations, mostly in Gujarat and Maharashtra, and plan to set up another 600 outlets in 2004-05 fiscal", Mr Sinha added.

State oil and gas company Pertamina has objected to the inclusion of its Cilacap oil refinery in Central Java on a list of companies deemed guilty of substandard environmental management.

The Environment Ministry announced the initial results of its Company Environmental Management Assessment Program (PROPER), which has so far evaluated the performance of 85 prominent companies over the 2002-04 period.

The program ranks companies as either gold, green, blue, red or black – with gold for an exemplary environmental performance and black for a substandard performance.

Criteria for the assessment include control of liquid waste, air pollution and hazardous waste; implementation of environmental impact analyses; management of resources and the environment; and public involvement.

Tempo Interactive said the Cilacap IV refinery was given a black ranking because it stores too much raw oil and produces below-standard oil.

The report said the Environment Ministry’s team had given Pertamina suggestions on how to improve it performance, but the company had failed to implement the recommendations.

Pertamina spokesman Hanung Budya Yuktyanta objected to the assessment. “It is such a naive criteria. We are definitely objecting to such an evaluation. The Cilacap refinery is our best refinery. My company has tried to meet the best standard of industrial processing that we could,” he said.

Environment Minister Nabiel Makarim said the government could not impose sanctions on the black-ranked companies, but would instead expect law enforcement agencies and the company’s stakeholders to take action.

“The blacklist status could alert Indonesian law enforcers to investigate the possibility of environmental law violations,” he said.

State-run oil and gas company PT Pertamina has installed a waste processing system at its Balongan refinery that rids water of hazardous wastes before it flows to the sea, thus preventing environmental damage in Indramayu`s coastal area, a local company official, JM Sianipar, said.

`Before it runs to the sea, the water will pass several lines of the processing system and two more filtering processes in the lagoon (final reservoir) so that the water that flows to the sea is already free from hazardous wastes,` Sianipar said.

The water would pass eight filtering processes before it runs to the final reservoir. In the reservoir, the water would pass two more filtering processes and run through an oil boom thus it is already free from oil waste when it reaches the sea, he said.

ANTARA found in the location that various plants have grown normally around the lagoon, fish could be spotted along the water flows, and shrimp ponds could be developed near the reservoir.

New Zealand Refining Company plans to build a $120 million electricity generation plant at the Marsden Pt Refinery.

The company's general manager, Thomas Zengerly, said local and regional councils were behind the project.

He said if the new plant proved viable it would provide an efficient, independent and more environmentally sustainable source of energy both to the refinery and to Northland from 2007 onwards.

The company said the project became a possibility after the Government awarded it 1.2 million carbon credits as part of the Projects to Reduce Emissions scheme.

Zengerly said the viability of the project would hinge on external factors such as the availability and price of natural gas and biomass, which would be needed as fuels to top up the gas produced by the refinery.

If it goes ahead, the facility will consist of two 42-megawatt gas turbines creating 690 gigawatt-hours of electricity per year. The refinery would use 290 gigawatt-hours of that electricity, exporting 400 gigawatt-hours back to other customers in the region.

The New Zealand Refining Company is developing the project with HRL, an Australian energy, technology and project development company. The plant would be built, owned and operated by HRL, with a long-term contract to supply electricity and steam to the refinery.

All of the gas from the refining operations will be used to power the new turbines. The turbines would also require about five petajoules of natural gas a year.

The refinery at present uses 1.2 million tons of steam a year in its refining operations. Under the new plan, heat from the new turbines will be recovered with heat recovery steam generators, and converted to 860,000 tons of steam. A multi-fuel fired boiler will be installed to produce the remaining amount of steam, with the refinery's existing boilers providing the balance and backup.

Singapore Petroleum and Caltex Singapore is to buy British Petroleum’s stake in a refinery in Singapore.

All three companies have equal stakes in Singapore Refining, but Caltex and Singapore Petroleum will each pay £35 million for BP’s one-third share, said Sarah Seah, a spokeswoman for Singapore Petroleum’s parent Keppel Corp.

Singapore Petroleum has said the acquisition is aimed at increasing its refining capacity to meet an expected boom in demand for petroleum products, especially in countries like China and India.

The refinery is located on Singapore’s Jurong Island and has a maximum capacity of 285,000 barrels per day. The deal is expected to be completed by June 30.

Austria's OMV oil company plans to spend $240 million to upgrade a refining plant in the town of Schwechat, local press reported April 15.

OMV will increase production of propylene and ethylene at the plant by 250,000 metric tons to 900,000 tons per year.

The company said earlier this week it would be shutting down its petrochemical cracker at Schwechat for around six weeks in late 2005 as part of its restructuring plans.

Royal Dutch Shell will probably not submit a final bid for the Czech petrochemical concern Unipetrol on April 23, reports the Czech internet publication Euro Online.

Citing sources close to the sale advisers -- McKinsey/West LB/EEIP -- the National Property Fund (FNM), and the investors themselves, Euro says binding bids will be submitted by Poland's PKN Orlen and Hungary's MOL. These companies, along with Shell, were shortlisted for the final round of the tender for 63 % of Unipetrol.

The bids will be opened the evening of April 23 and the final decision on the sale could be made by the Czech Cabinet as early as the week of April 25.

Euro says the bids may come with attached conditions that could complicate the sale.

Reuters news agency reported on April 14 that Shell aimed to expand its refinery operations in the CR but would not confirm its intention to bid for Unipetrol.

"With respect to the privatization of Unipetrol, please accept that we do not want to participate in market speculation," Shell said in a written response. "Our position remains unchanged: We are interested in parts of the oil downstream assets of Unipetrol but not the petrochemical elements," it added.

As part of a consortium with Italy's Agip and the US oil firm ConocoPhilips, Shell already owns 49 % of Unipetrol's main unit, the Ceska rafinerska (CeRa) refinery. The consortium has an option to buy the remaining 51 %.

Unipetrol consists of the parent company and its subsidiaries - the 100 %-owned Chemopetrol, Kaucuk, and Benzina, and the majority-owned subsidiaries CeRa (51 %), Paramo (74 %), and Spolana (80 %).

Unipetrol announced a consolidated net profit of CZK 87.7 mln in 2003, compared to CZK 635 mln in 2002.

Unipetrol was sold, unsuccessfully, in 2002 to the Agrofert holding, which failed to come up with the EUR 361 mln (CZK 11.5 bn) price, prompting the government to call a second tender.

Honeywell International Inc.'s Phoenix-based Process Solutions unit announced a $4.3 million contract with Motor Oil Hellas in Aghii Theodory, Greece, to expand the control and safety systems at the company's 100,000-barrel-per-day refinery in Corinth.

According to a Honeywell announcement, the system expansion is part of a refinery-wide project to comply with new European Union fuel specifications starting in 2005. Through this project, the refinery will reinforce its ability to control and monitor the new processes, while ensuring the safety of daily operations.

"We have worked with Motor Oil Hellas since 1999 and are looking forward to further strengthen our relationship through this new opportunity," said Jerry Walker, Honeywell Process Solutions' vice president of Europe, Middle East and Africa.

The contract includes Honeywell process control systems, high-performance process managers, fail-safe control systems, engineering, on-site services and project management.

The project will be conducted in two phases, Honeywell officials said. The first phase includes the revamp of existing process units. To satisfy the needs of these revamped units, Honeywell will add new modules to expand the existing distributed control and safety management systems. Existing configuration and operator interfaces will be modified properly according to the revamping activities.

The second phase is related to the construction of new units. A Honeywell-distributed control system designed with the same standards as the existing one will control the new units.

Honeywell International is a technology and manufacturing company with $23 billion in 2003 revenue. The parent company is based in Morris Township, N.J., while the Phoenix-based Process Solutions unit is part of the Minnesota-based Automation and Control Services unit.

Honeywell International, Mossistown, NJ, was awarded a $5.8 million contract to oversee installation of automation equipment and services at a new gasoline desulphurization unit at a Hungarian refinery belonging to MOL PLC.

The unit is part of Szazhalombatta refinery, which has a 161,000 b/d capacity. Honeywell Hungary is the automation contractor, providing third-party instrumentation and engineering services. The contract work is expected to be completed by June 2005.

MOL is one of central Europe's largest integrated oil and gas companies. Honeywell's relationship with MOL dates back to 1997, when it began working on a series of automation projects for the company's two refineries.

Akzo Nobel has received an offer from Albemarle Corporation for the sale of its refinery Catalysts business for EUR 625 million, free of cash and debt. Akzo Nobel announced its intention to divest this business in September 2003 in order to create more room to maneuver for the Company. Closing of the transaction is expected to be in the second quarter of 2004. The deal involves all assets and all current employees of the business, including shares in joint venture companies. Employee representative bodies and unions have been informed and consultation procedures will commence shortly, where applicable. The required regulatory approvals will be sought as and when appropriate.

Hans Wijers, Chairman of Akzo Nobel’s Board of Management, said: “We are pleased with the speed at which we have been able to proceed with this divestment and that the offer we have received reflects the value of the business. Catalysts is an excellent and innovative business manned by creative people making positive contributions to refinery efficiency and the reduction of emissions. We are confident that Albemarle will continue to develop the business.”

Mark C. Rohr, President and Chief Executive Officer of Albemarle, said, "The critical mass in catalysis represented by our proposed acquisition of the Akzo Nobel business provides a strong technology foundation, positioning us well for sustainable growth in the refinery market. Refiners are increasingly challenged to provide higher quality fuels, the market is globalizing, and we will have the technology and innovation capability to serve more than 750 refineries worldwide facing these issues."

Cornerstones of the Catalysts business are the Fluid Catalytic Cracking Catalysts (FCC) and Hydro Processing Catalysts (HPC), used in the oil refining process. Globally, the business has a leading position in both product areas. Other catalysts, such as those for isomerization and alkylation, are also marketed or under development. Sales in 2003 amounted to some EUR 350 million, while EBITDA for the same period was EUR 87 million inclusive of income from non-consolidated joint ventures.

Production sites for FCC and HPC catalysts are in Amsterdam (The Netherlands) and Pasadena (Texas, United States). Chemical Processing Catalysts (CPC) are produced in Amsterdam. The BU has 50% owned, non consolidated joint ventures in Brazil (FCC SA,) France (Eurecat, with affiliates in the U.S., Saudi Arabia and Italy) and Japan (Nippon Ketjen).

The business currently has its main office in Amersfoort (The Netherlands) and regional offices in Houston (Texas, U.S.) and Singapore. Research centres are located in Amsterdam and Pasadena. Employees total some 825 worldwide.

Slovakia's Slovnaft oil refinery, a unit of Hungary's MOL oil concern, plans to raise its investments by 35 % to roughly SKK 8.5 bn this year. Most of the money will be spent on new technology and environmental projects.

Slovnaft will earmark SKK 2.2 bn to develop its network of gas stations in Slovakia, the CR, and Poland and also plans to invest SKK 0.5 bn in the CR this year, up from under SKK 200 mln in 2003. Slovnaft is also Slovakia's largest gas retailer with over 300 service stations. It owns 44 stations in the CR, and 16 in Poland.

The MOL group, which includes Slovnaft, MOL, and TVK, processes 13 mln tons of oil annually and operates 850 gas stations in seven countries.

Kazakhstan has been increasing production and exports of oil with every year, but the domestic market, which has changed little in size in recent years, is still plagued by chronic shortages of fuel and lubricants.

This forces the government to annually impose unpopular export restrictions on diesel fuel and price controls in order to prevent seasonal turmoil on the local market and disruptions in crop planting.

Kazakhstan’s government on March 1 again imposed a temporary ban on exports of diesel fuel in order to build up the necessary reserves of fuel to meet the country’s needs during the spring planting season.

At the end of February, the Energy and Mineral Resources Ministry (MEMR) asked Kazakh oil refineries to sell fuel and lubricants to farmers at fixed prices over the following three months. The agreed price ceilings for diesel fuel are $139 per ton (not including transportation costs) for the Atyrau Oil Refinery, $179 for the Pavlodar Petrochemicals Plant, and $141.70 for PetroKazakhstan Oil Products, a refinery in Southern Kazakhstan region.

In other words, refineries will have to sell their products to farmers at a discount of one-third compared to the current market factory-gate price of $210 to $270 per ton.

The MEMR has also assigned each refinery specific regions to which it will supply diesel fuel at fixed prices and according to a specific schedule. In order to ensure farmers get a steady supply, national oil transport company KazTransOil will be required to give priority to shipping crude to refineries, and national rail carrier Kazakhstan Temir Zholy has been ordered to set aside sufficient rolling stock to deliver diesel fuel on time.

Officials say the government is forced to annually resort to these unpopular measures because, if the market alone were left to rule, most farmers would be left without fuel since it is more profitable for refineries to export their products.

The Agriculture Ministry has said that Kazakhstan annually needs 300,000 tons of diesel fuel for spring planting.

At first glance, the situation seems absurd – Kazakhstan is increasing production and exports of oil with every passing year, but the domestic market, though it has changed little in size, suffers chronic shortages of oil products. This market is tiny by global standards and its needs could easily be met by a single vertically integrated company.

Kazakhstan’s annual demand for oil products amounts to about 2.23 million tons of gasoline, 3.2 million tons of diesel fuel and 1.57 million tons of fuel oil. Average monthly demand is about 185,900 tons of gasoline, 256,600 tons of diesel fuel and 131,100 tons of fuel oil.

In order to completely saturate the domestic market with locally produced fuel and lubricants, it would be sufficient to supply the three existing refineries with 9.5 million tons of crude per year.

However, Kazakhstan now only produces 60% of its own diesel fuel and gasoline, even though crude and condensate production topped 50 million tons in 2003 and the current demand of the domestic market is less than a fifth of this amount, experts said.

The main reason for the annual seasonal shortages on Kazakhstan’s oil products market is that the country’s refineries are chronically undersupplied and are therefore unable to produce a sufficient amount of oil products.

Three refineries make up the backbone of Kazakhstan’s refining industry: the Atyrau Oil Refinery, the Pavlodar Petrochemicals Plant, and PetroKazakhstan Oil Products. They have combined capacity to annually refine 18.5 million tons of crude and produce 11 million-12 million tons of oil products, which would not only cover domestic demand but also allow the country to export a considerable amount of refined products.

The Atyrau Oil Refinery, opened in 1945, is the only refinery in the country intended to process domestic crude from fields in Western Kazakhstan.

It has capacity of 4.5 million tons, and a product yield from crude of 59.4%. The refinery makes low- and high-octane gasolines (A-72, A-76, A-80, AI-91 and AI-93), diesel fuel, fuel oil, gasoil, petroleum coke, white spirit and demulsifiers, among other products. It is undergoing a refurbishment that should boost product yield from crude to 82%, and broaden the product range to include, among other products, aviation kerosene and winter diesel fuel that meets the Eurostandard-2005.

The Pavlodar Petrochemicals Plant, launched in 1978, is geared toward West Siberian and Tyumen crude shipped in by the Omsk-Pavlodar-Shymkent-Chardzhou pipeline. The refinery has capacity of 7.5 million tons and a product yield from crude of 85%. It product mix includes gasoline (A-80, AI-91, AI-92, AI-93 and AI-95), jet fuel, diesel fuel, fuel oil, furnace fuel, liquefied gas, petroleum bitumen and coke.

PetroKazakhstan Oil Products, built in 1985, is intended to refine low-viscous crude blends from West Siberian fields. It is now refining crude from the Kumkol group of fields being developed by Canada’s PetroKazakhstan and has capacity of 6.5 million tons. Its products include gasoline (A-76, A-80, AI-91, and AI-95), jet fuel, diesel fuel, fuel oil, and liquefied gas.

These refineries should theoretically be supplied by their owners – vertically integrated Kazakh oil companies, and by independent producers, for whom this should be profitable.

All three refineries are owned by vertically integrated oil companies with a complete production cycle from the well to the petrol pump. The Atyrau refinery is owned by national oil and gas company KazMunaiGas, the Pavlodar refinery belongs to Mangistaumunaigas, and PetroKazakhstan Oil Products to PetroKazakhstan, the second largest foreign oil producer in Kazakhstan after Tengizchevroil.

But while these companies are among the leading oil producers in the country, their production capacity is still insufficient to fully supply the capacity of their refineries, and consequently supply the domestic market with sufficient fuel at affordable prices.

By global standards, these Kazakh oil companies have very modest production figures combined with high production costs. All three have comparatively limited technical and financial resources, preventing them from independently developing new fields, and thus substantially boosting their reserves and production potential, experts said.

As a result, their refineries operate at no more than 55% of capacity. This in turn increases the unit cost of refining, which in Kazakhstan approaches 30% of the cost of the end product.

Foreign companies that extract oil in Kazakhstan have little interest in refining crude locally, preferring instead to supply their own refineries and then sell high quality oil products, including in Kazakhstan.

In the West, the main concern for oil refineries is not finding crude, but efficient refining and production of competitive products with a strong brand. Each company tries to win and hold on to specific market niches, such as lubricants (Shell) or special types of diesel fuel (Elf).

In addition, the obsolete equipment of Kazakh refineries cannot efficiently handle the crude from most Kazakh fields, which is highly pariffinous and has a large number of metal impurities. But western refineries can process heavy Kazakh crude profitably and competitively

Thirdly, high world oil prices and the existing system of settlements with Kazakh refineries makes exporting crude more profitable than supplying oil to the domestic market.

Non-monetary settlements still dominate. KazMunaiGas president Uzakbai Karabalin recently said that monetary settlements for crude supplied to the Atyrau refinery do not exceed 8-10%. Kazakh refineries try to get crude in exchange for oil products, retaining part of the crude or refined product as payment for services.

The cost of refining crude on such a barter basis averages $15-$17 per ton, and the refined product is returned to the crude supplier. Naturally, income from the sale of refined products following all these operations is incomparable with the profit to be made from exporting crude at today’s prices of more than $30 a barrel.

Another factor for western oil producers with traditional markets is that it is unprofitable to change established sales schemes.

Independent producers are also trying to take full advantage of the price situation and export crude for a quick turnaround. And deliveries to Kazakh refineries are made only on the orders of the MEMR. According to the schedule approved by the ministry, domestic refineries should refine 9 million tons of crude this year.

However, the situation cannot continue this way for long. The expansion of production presupposes growing domestic demand for fuel, which will only increase with time.

The MEMR reckons Kazakhstan will be refining at least 9.5 million tons of crude by 2005, 14.8 million tons by 2010 and 18.6 million by 2015.

The country expects to solve the problem of supplying domestic refineries through the large-scale development of offshore fields in Kazakhstan’s sector of the Caspian Sea. Initially, offshore Caspian crude will be shipped on a priority basis to the Atyrau refinery, and then to the refineries in Pavlodar and Shymkent.

Mandatory shipments of Caspian crude to domestic refineries will be stipulated in the conditions of future contracts with oil producers.

But for now, the big gap between demand and domestic production of oil products makes Kazakh consumers extremely dependent on outside suppliers, which does nothing to further steady economic growth.

The Kenyan government is planning to close down the multi-million shilling oil refinery in Mombasa, a PS announced April 22.

Mr Patrick Nyoike of the Ministry of Energy said that the refinery would be closed "because it is has become un-economical to maintain its operations."

Nyoike said that a consortium of donor agencies have expressed interest in funding the extension of the Kenya Pipeline to Uganda starting next year. Phase one of the project is expected to begin once the Government identifies a strategic partner to foot part of the bill.

Dr. Shem Ochuodho, KPC's managing Director said that the extension of the pipeline into Uganda has been placed on a fast track.

"A successful joint-coordinating commission (JCC) meeting was last week held in Nairobi between senior officials of Uganda and Kenya governments," he said.

Ochuodho said the meeting had resolved that an advertisement be placed in the newspapers next week calling for expression of interest strategic partnership. In addition, plans are underway to consider extending the pipeline to Kigali, Rwanda and eventually to Eastern DRC.

Construction of the current pipeline will include the laying of fiber optic cable along the entire length of the pipe " to meet both the security as well as the company's communications needs."

"We expected, for instance, to reduce our current bill on security, which stands at Sh12 million per month by at least 50 per cent once the cable is laid," Ochuodho said.

He was, however, emphatic that KPC will not review its tariffs downwards, even though most of its clients have taken issue with existing rates. "It should be noted that KPC tariffs were last reviewed in 1994, for ground fuels and exports and November 1995 for jet fuel," he said.

Despite the rise in inflation rates and the weakening of the shilling against major world currencies, KPC had maintained kept the tariff at the level they were 10 years ago.

The company has also refrained from increasing tariff rates to cover the cost of large capital investments undertaken in the last five years, he said.

Ochuodho said that the tariffs have had little impact on the fuel costs "because pump prices at Mombasa are actually higher than in Western Kenya towns of Kisumu and Eldoret, which due to the long distance, arguably have relatively high product transportation costs."

It was the deal that put Occidental Petroleum Corp. (OXY ) on the map. Back in the 1960s, Oxy Chairman Dr. Armand Hammer came calling on King Idris of Libya with a bold plan: He'd dig water wells in Libya's deserts in exchange for exploration rights to Libya's vast oil reserves. By the mid-'80s, the country accounted for 22% of Oxy's crude-oil production and 19% of its reserves. Now, nearly two decades after the U.S. imposed sanctions against Libya following the rise to power of dictator Colonel Muammar Qaddafi, Oxy wants back in -- only this time it's offering cold hard cash instead of wells. After meeting with Qaddafi in his desert tent in March, Hammer's successor, Oxy Chairman Ray R. Irani, says Qaddafi wants to "put all the problems with the West behind him. We're keeping our fingers crossed."

Oxy isn't the only oil company trekking to Tripoli. Since February, when the U.S. government rolled back travel restrictions to Libya, Qaddafi has been meeting with a host of the world's oil execs, including reps from ConocoPhillips (COP ), Marathon Oil (MRO ), and Amerada Hess (AHC ). The trio make up the Oasis Group, a joint venture that until 1986 held a minority stake in a vast Libyan oil field. And in late March, execs from Anglo-Dutch Royal Dutch/Shell Group signed an exploration agreement, firing the first salvo in what is expected to be a lively battle among Western oil outfits to exploit Libya's energy resources. Its estimated 36 billion barrel oil reserves and 46.4 trillion cubic feet of natural gas make Libya the ninth-largest source of untapped oil and gas. "Libya is seen as a spectacular opportunity," says analyst Subash Chandra of Morgan Keegan Inc.

The caravan of oil executives bearing promises comes as Libya rushes to shed its pariah status following its acceptance of responsibility for the 1988 bombing of Pan Am Flight 103 over Lockerbie, Scotland, and an agreement with the U.S. to renounce its banned-weapons program. As a result, the Bush Administration is soon expected to lift some economic sanctions imposed nearly 20 years ago. While there is still debate in Washington over how far to go until Libya makes further progress on political reform and human rights, U.S. oil companies will probably be allowed to return.

Still, a huge rush into Libya is far from certain. For one thing, although Libya is still largely unexplored, recent finds have been modest. The government may also drive a hard bargain, slowing the process of awarding rights. But Libya does want American participation -- both for economic reasons and to end its diplomatic isolation. U.S. investment would be "a sign of international recognition," says Vera de Ladoucette, senior director for Middle East research at Cambridge Energy Research Associates in Paris.

The returning U.S. companies will face competition, however, as Europe's oil majors are also looking at Libya more intently these days. While some of them -- including ENI, Total (TOT ), and Repsol YPF (REP ) -- have been operating there for years, the European industry is as eager as the U.S. for a piece of the new action. They, too, are struggling to replace reserves in the face of tight supplies and rising demand. What's more, Western outfits will be vying for business to help Libya upgrade its aging refineries.

U.S. companies, forced out of the country in 1986, have the most to gain. Since then, the Libyans have operated their joint-venture projects alone. Now the Americans have begun negotiating their return to the fields. Qaddafi has welcomed back Oasis Group, which still holds a 41% stake in the Libyan National Oil Co.'s 13 million-acre Waha fields. Similarly, when Oxy left, it owned 222 million barrels in reserves and extensive exploration rights. All told, Libya wants $30 billion in foreign investment. That could hike production some 40%, to 2.1 million barrels a day, over five years.

The Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Engineer Funsho Kupolokun said that the Warri refinery would resume production early next month to boost local supply of petroleum products.

The NNPC is however, set to stop placing orders for the importation of automotive gas oil (AGO) commonly known as diesel.

Kupolokun, who spoke in Lagos during the commissioning of fuel distribution facilities of Zenon Petroleum and Gas Limited, said repair works on the damaged oil pipeline supplying crude to the refinery, would be completed in two weeks time.

He said construction giant, Julius Berger Plc, was handling the repairs of the pipeline said to have been vandalized by militant youths in the Escravos area of Warri, Delta State.

"Today Warri refinery is still down but it should be up within the next one month," said Kupolokun.

"The pipeline which we are fixing should be finished within the next three weeks. We will build stock of crude for another two weeks, thereafter Warri will go into production," he added.

Warri refinery had been shut since last year for the turn-around maintenance that cost the NNPC $22.92 million. However, its expected resumption of operation last January was cut short following vandalizing of the pipeline that was to supply crude to the refinery.

Kupolokun said earlier plans to re-fix the pipeline by April 6, 2004 could not be achieved because Julius Berger discovered more damage to the lines than earlier envisaged.

According to the NNPC boss, when the 125,000 barrels per day (bpd) plant resumes production, the plant will produce 3.5 million liters per day of premium motor spirit (PMS) or petrol.

Current local supply of petrol is put at around 4.8 million liters per day, compared to the total daily national demand of 30 million liters.

Kupolokun said local supply would increase sharply to between 16 million and 18 million liters per day, when on-going repair of all the nation's refineries are completed.

He however, said the overhaul of the three other refineries, the Kaduna plant and the two in Port Harcourt, would be completed by end of July.

"Port Harcourt refinery is running today at about three million liters per day of PMS. But by the time we finished the work on the Fluid catalytic cracking (FCC) unit, which should be ready by July, we will be talking of something in excess of six million liters per day.

"Kaduna refinery is doing 1.5 million liters per day, by the time we finish revamping the FCC it will go up. By August we should be able to do anywhere between 16 to 18 million of a day of PMS," he said.

With the increased local production, Kupolokun said the NNPC would cut down on its petrol import to 25 percent of total national needs from the current 70 percent.

He added that while the NNPC was currently cutting down on importation of kerosene, the corporation was backing off completely from importation of diesel.

"By August we will have withdrawn gradually from a level of 25 percent of PMS importation. So that the only reason for us to be there is to be able to get familiar with market fundamentals so that we know what is happening," he explained.

The NNPC MD however commended Zenon Petroleum for the N15 billion investment in fuel distribution expansion project, which he said, was the direct result of liberalization and deregulation of the downstream petroleum sector.

The President/Chief Executive Officer of the Zenon, Mr. Femi Otedola, said at the occasion that the acquisition of the trucks and vessels was to widen the company's fuel distribution network.

Otedola said the company planned to construct an 80,000 metric ton petrol storage facility at Apapa, Lagos, which will be a joint venture between Zenon, Messrs Yinka Folawiyo Group and Petroplus International.

Kenya’s Bidco Oil Refinery topped Uganda’s list of 2003 foreign investors with a Sh7.7 billion refinery in Jinja refinery.

"The Jinja refinery project is worth over US$100 million, making Bidco the top Kenyan investor in Uganda," said Dr Maggie Kigozi, the executive director of the Uganda Investment Authority.

Consequently, Kigozi said, construction of the Jinja subsidiary ensured the Thika-based manufacturer "topped the list of Uganda’s FDI’s."

In the period under review, Kenyan firms invested a total of Sh9.2 billion (US$119 million) in Uganda.

Despite the uncertainty of the Oil Refineries’ (Bazan) privatization, Granite Hacarmel Investments, controlling the Sonol fuel company, has expressed interest in the purchase of one of the refineries in Haifa or Ashdod. Although the government has not yet decided whether to split or to sell the refineries, the issue arose during the company’s management and board meetings.

The government is expected to begin the privatization in 2005. The company is valued at over $500 million and is owned by the State of Israel (74%) and the Ofer Brothers’ Israel Corporation (26%).

Sonol CEO Yossi Antrop commented that “the final decision has not yet been made, but the privatization of the refineries seriously interests us”. Antrop added that the split of the refineries would increase competition on the fuel market. He estimated that other major fuel companies, such as Paz, Delek, and Dor Alon, would also try to purchase the refineries.